The Evolution Of Strategy

When we think of great strategists in history, from Sun Tzu to Alexander the Great to Clausewitz, we think of master chess players, leaders who personify timeless principles and can think two or three moves ahead.

Strategy has always been the sexy part of business, where boring Word documents and endless Excel spreadsheets give way to glorious PowerPoint decks.  Here drudgery ended and modern day corporate generals could sit back and formulate plans for world domination.

For better or worse, those days are over.  As Rita Gunther McGrath explains in her new book, The End of Competitive Advantage, strategy is now a game that looks more like World of Warcraft then the game of kings.  You never win, but are always questing, gaining new skills and resources along the way and continually seeking the next challenge.

The Last Thing We Need Now Is A Vision

Many strategies start with a vision.  For instance, Herb Kelleher at Southwest Airlines had a vision that air travel could compete with ground travel on price.  Therefore his main objective was to become “THE low cost airline” and decisions were undertaken based on that one overriding principle.

However, sometimes a clear vision can blind management to market realities, which was the case with Jeffrey Skilling and Enron.  Skilling believed that securitization and a quantitative approach could make the company unstoppable.  Unfortunately, that same vision (and some financial legerdemain) obscured serious problems that led to one of the great financial meltdowns in history.

Often, a vision has a shelf life.  It works for a while and then outlives its usefulness.  That was true of Jack Welch’s idea that every business should be number one or two in its category or abandoned.  It drove company strategy for a while, until it became clear that the evaluation had as much to do with category definition as it did with true success.

And that’s the problem with a vision, it’s almost impossible to distinguish it from a delusion.  A vision is also prone to survival bias—we remember the few that succeed, but the legions of failures are mostly lost to history.

The Rise and Fall of Strategic Planning

When Alfred Sloan conceived the modern corporation at General Motors, he based it on hierarchical military organizations.  Orders flowed downwards and your rank determined your responsibility.

Perhaps not surprisingly, business strategy started to look more like military planning, with thick books filled with reams of market intelligence, tactics and procedures.  Middle management’s primary function was to “execute the plan” and compensation reflected performance against predetermined objectives.

By the 1980’s, the seams began to show.  When Jack Welch took the helm of General Electric he largely dismantled the strategic planning process because, as he said at the time,”the books got thicker, the printing got more sophisticated, the covers got harder and the drawing got better,” but none of that improved how the company performed.

Today, planning has become even less tenable.   As the speed of business continues to accelerate and technology cycles outpace corporate planning cycles, the false certainty that planning engenders is becoming an impediment to, rather than a tool for, attaining objectives.

Roger Martin put it best in an article for The Harvard Business Review, strategy is not planning.

Emergent Strategy

When commandos arrived at Osama bin Laden’s compound in Abbottabad, Pakistan, the first helicopter got caught in an air drift and had to crash land, destroying not only the element of surprise, but also their plan for entry (the second helicopter was supposed to drop soldiers on the roof of the villa).

However, the mission did not have to be scrapped, because today’s military operations are not dependent on plans, but commander’s intent— a clear and concise statement of goals and the parameters within which they must be met.  That’s also the idea behind what management guru Henry Mintzberg calls emergent strategy.

Andy Grove’s famous move to bet Intel’s future on microprocessors was, in fact, an emergent rather than a planned strategy.  In his memoir, Only the Paranoid Survive, he recounts that his decision was largely based on changes in production already made by line managers.

On the other hand, Xerox’s failure to capitalize on the inventions created at its PARC division exemplifies the importance of recognizing how developments lower down in the organization can and should (but alas, often don’t) affect decision making at the top.

Increasingly, management’s role is not to organize work, but to direct passion and purpose.  In a digital world, there is truly no need for it to be so lonely at the top.

Bayesian Strategy

Mintzberg formulated his ideas about emergent strategy in the 80’s, when it became clear that Peter Drucker’s vision of the knowledge economy had come to fruition.  However, today technology is changing how corporations learn.  Whereas before, knowledge was exclusively in the human domain, now machines are performing cognitive tasks.

We can no longer afford to wait for statistically significant evidence to filter in, analyze it, form a consensus and then act.  We can’t even afford a truncated version of the same.  In this new age of big data analysis and the Web of Things, information comes at us real time and so does the competition.

Even failing “fast and cheap” is becoming too slow and expensive.  As Rita Gunther McGrath writes, “Prediction and being ‘right’ will be less important than reacting quickly and taking corrective action.”  We must discard the fantasies of false certainty and learn to become less wrong over time.

Strategy needs to evolve.  In truth, the cult worship of the visionary was never about strategy, but control and control has always been an illusion.  We need to update strategy to a more Bayesian process where there are no certainties—only probabilities—that evolve and change in real time.  We need to do so as well.

– Greg